Import price rise shows deflation concerns becoming a distant worry

The inflation picture looks to be changing very quickly, and May’s import price data feeds into that story.

On a monthly basis, import prices nudged up by 0.1% on higher fuel prices, the Labor Department said Thursday.

On a year-over-year basis, import prices grew in May for the first time since July 2013. The growth, of 0.4%, obviously isn’t much, but as recently as November import prices were falling at a 1.8% clip.

Import prices are the first of three indicators the Labor Department releases on inflation, with producer prices coming Friday and consumer prices due for release Tuesday.

Similar trends are developing in these indicators as well — on a year-over-year basis, producer prices in April were the highest since February 2012 and consumer prices in April were the highest since July.

The question is what does this mean for the Federal Reserve, and it’s not an easy answer. The deflation concerns that a few Fed officials mentioned at the onset of the year are now a distant memory.

Still, there’s nothing in the recent reports that will get the Fed to expedite the wind down of the taper, for instance. The Fed’s target is to have prices on the PCE measure growing at a 2% clip, and that level hasn’t been reached as yet. Even if it were to exceed that, the 2% target is over the medium term, not just a month, and there are some like Minneapolis Fed President Narayana Kocherlakota who say the Fed should let inflation build to recapture the price level that’s been held back by the slow recovery from the Great Recession.

But how the inflation data evolves through the rest of this year could play a role in determining the timing and the pace of rate hikes next year.